Bitmain Technologies IPO Could Be Called Into Question

Bitmain Technologies, one of the largest cryptocurrency mining semiconductor companies’ initial public offering or IPO, could be called into question if the cryptocurrency market woes exacerbate further.

Bitcoin on a printed circuit board. Credit: Getty Royalty Free

The much-awaited Hong Kong listing is expected to fetch Bitmain $3 billion, but it is coming at the same time that there’s turmoil in the marketplace. Take the price of Bitcoin, the leading cryptocurrency, for starters. After surging to nearly $20,000 late last year, its value has plummeted. It now trades around $6,400. Then there are Bitcoin Exchange Traded Funds--the holy grail of legitimacy-- that have failed to get the backing from the Securities and Exchange Commission. Many crypto investors expected bitcoin ETFs to push digital tokens to the mainstream. With that still elusive, the price of bitcoin has been on the decline.

Nvidia Says Lift From Cryptocurrency Is Over

At the same time, the cryptocurrency market is showing signs of retraction, demand for graphics cards to mine bitcoin is on the decline. During the craze of 2017, Nvidia, the graphics chip maker, and competitor Advanced Micro Devices couldn’t keep their products on the shelves, even prompting Nvidia to ask retailers to sell its cards to gamers by limiting orders to two per customer.

But that all changed this year. In reporting fiscal second-quarter results in August, Nvidia said the demand driven by cryptocurrency is waning. Just how much? According to Reuters, it had previously forecast chip sales from the cryptocurrency market to come in around $100 million. The reported result: $18 million. “We benefited in the last several quarters from an unusual lift from crypto,” CEO Jensen Huang said on a conference call with analysts covered by Reuters. “At this time, we consider it to be immaterial for the second half.” That was a blow to investors who expected Nvidia’s fortunes to continue to be lifted by cryptocurrency.

Supporters of Bitmain aren’t concerned. They argue Nvidia and AMD’s losses is the Chinese chip maker’s gain. After all, according to Forbes, the company generated revenue of $2.5 billion last year and $1.1 billion in net profit for the first three months of this year. The lion’s share of its revenue or about 96% came from mining rigs with 3% derived from mining digital tokens and providing other support services. Its line of Antminer chips control 85% of the market, noted Forbes.

Is A Inventory Write-Down Coming?

Bears, see it differently. They are more suspect about future demand and recognize Bitmain is no longer the only player. Take Wall Street firm, Sanford Bernstein. Analyst Mark Li argued in a research report in late August that Bitmain’s lead is now in question as rivals catch up. That could result in the Beijing mining chip company having to write down the value of its inventory, the analyst argued.

“The competitiveness of Bitmain’s chips is in question,” Li wrote in a note that was covered by Bloomberg. Acknowledging that Bitmain has been a huge success last year, the Wall Street firm said it’s facing increased competition from the likes of Canaan Inc. and Ebang International Holdings Inc. Not too surprising, the two are also pursuing IPOs with Hong Kong listings. But Bernstein’s concerns don't end there. The Wall Street firm said it's likely Bitmain has been acquiring a large amount of Bitcoin Cash which could post a big risk to the company if the digital token declines. Bloomberg noted at the time Bitcoin Cash was down around 68% since the start of May.